Shrinking Economic Distance: Understanding How Markets and Places Can Lower Transport Costs in Developing Countries

Shrinking Economic Distance: Understanding How Markets and Places Can Lower Transport Costs in Developing Countries

The problem of economic distance remains a priority for most developing countries.

The efficiency of logistics infrastructure and the cost of transportation directly affect the socio-economic development of regions and the quality of life of the population. The World Bank analyzed the main determinants of economic costs of freight transportation in developing countries, identifying the reasons for high transportation costs, long delivery times and their low reliability.

  • The cost of transporting cargo is determined by the distance and terrain features. Thus, reducing the distance of food delivery in low- and middle-income countries by 100 km reduces costs by an average of 20%.
  • Poor quality of road infrastructure, in turn, can aggravate the impact of extreme weather events. Delivery during the rainy season is 6% more expensive.
  • State of sea terminals. Improving the technical characteristics of ports, increasing their productivity by 25% can reduce cargo transportation costs by 37%.
  • The level of competition in the market. High competition in the transport sector can improve service quality and reduce prices. In Colombia, a 10% decrease in the market share of a long-haul trucker on a route lead to a 0.57% decrease in the price of freight transportation.

Increasing the economic connectivity of regions requires solving two interrelated problems: improving the situation in the transport services market (promoting competition, stimulating investment, introducing innovations, price regulation, reducing administrative costs) and developing transport infrastructure (effective planning and management of the transport network).


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